Are you thinking about expanding your online business and selling your products on Amazon? While it may seem like a no-brainer at first, there are some pros and cons to consider before taking the leap.
Sure, selling on Amazon can give your brand exposure to a larger audience, but there are some downsides you should know about. For example, you may have limited branding opportunities and won’t have access to customer data. Plus, there are extra fees to consider, which can eat into your profit margins.
Ultimately, whether selling on Amazon is worth it or not depends on your individual business. Factors like the type of products you sell, competition in your category, and restrictions should all be taken into account before making a decision.
In this article, I’ll dive deeper into the pros and cons of selling on Amazon. So, if you’re thinking about expanding your business to Amazon, keep reading!
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How much do Amazon sellers make?
According to data from Jungle Scout, 50% of Amazon sellers make at least $1,000 in monthly sales. Some successful sellers even make over $100,000 each month!
Of course, the amount you earn on Amazon depends on many factors. How much time you spend on your business, how you market your products on social media, and your average profit margins are just a few of the variables to consider.
Another important factor is your fulfillment method. Jungle Scout found that 89% of third-party Amazon sellers use FBA. This method can result in sales ranging from a few hundred dollars per month to over six figures.
Keep in mind that success on Amazon requires hard work and dedication. But with the right strategy and effort, you could be one of the many successful Amazon sellers out there.
Is it still profitable to sell on Amazon?
If you’re an SMB seller on Amazon, generating revenue is one thing, but making profits is what truly counts. In fact, Jungle Scout’s 2022 report suggests that 65% of small to medium-sized Amazon sellers have at least 10% profit margins, while 32% have 20% or higher.
Your profit margins largely depend on the products you decide to sell and how you obtain them. As a beginner, you should do your research and find the most profitable products to sell on Amazon. Identify which wholesalers or manufacturers work best for you.
According to Jungle Scout’s 2022 report, the five product categories with the highest profit margins are:
- Home and Kitchen (32%)
- Beauty and Personal Care (23%)
- Toys and Games (20%)
- Clothing, Shoes and Jewelry (18%)
- Health, Household and Baby Care (17%)
When you choose to sell a new product on Amazon, keep in mind some of the factors that can affect your profit margins. These include:
- Startup Costs: You need an individual plan, which costs 99¢ per unit sold, or a professional plan, which costs $39.99 a month.
- Referral Fees: Amazon takes a percentage of each sale for using its marketplace. The percentage taken depends on your product category, but it is often between 8% and 15% of the product’s price.
- FBA or Fulfillment Fees: These are the fees that Amazon charges to handle the product you’re selling, based on the dimension and weight of the product. Amazon Seller Central quotes fulfillment costs as starting at $4.75 per unit.
- Amazon Ads: This is a helpful tool for sellers to get their products seen while customers are browsing Amazon. However, if you have a product with a lot of competition, advertising on Amazon can cost you a lot of money.
Overall, using the Amazon marketplace to sell your products will make you money. However, depending on the type of e-commerce business you have (or want to start), you might find Amazon competitors, like eBay or Etsy, more profitable for you.
- Learn more about the cost of selling on Amazon.
Pros of selling on Amazon
With more than 300 million active Amazon customer accounts, it’s no surprise that many brands and small businesses are exploring the benefits of selling their products on Amazon. Here are some reasons why you might want to consider it too.
1. Reach a Wider Audience
Selling on Amazon gives you access to a vast customer base that might not have found your products otherwise. Plus, listing your products on Amazon can add credibility to your brand, making it more likely that customers will choose your products over competitors they’ve never heard of.
While customers might not be searching for your specific brand, they could stumble upon it during their search for a particular product. That’s why it’s crucial to optimize your product listings for Amazon SEO. If you provide an excellent customer experience, you can turn a one-time customer into a loyal fan.
2. Quick and Easy Setup
Setting up a standalone e-commerce store can be time-consuming and require technical skills. On Amazon, however, getting started is relatively straightforward. You can start listing your products without any technical expertise.
Of course, that doesn’t mean you shouldn’t optimize your listings to stand out from the competition. With Amazon handling the setup and logistics, you can focus on optimizing your product listings and digital marketing to get the best results.
- Learn more about how to list your products on Amazon.
3. Easy Fulfillment with FBA
Using Amazon’s Fulfillment by Amazon (FBA) program can make fulfillment a breeze. By participating in the program, your products will be eligible for Amazon Prime shipping, and you’ll only have to pay a single bill for online marketplace fees and fulfillment. Plus, you’ll have access to Amazon’s vast network of order fulfillment centers and logistics operations.
4. Leverage Amazon’s Brand Recognition
When you sell on Amazon, you get to leverage the power of Amazon’s brand recognition. Buyers trust Amazon, and they trust third-party sellers on the platform. In fact, Amazon has been ranked #2 on Fortune’s list of the World’s Most Admired Companies for the past six years. By selling on Amazon, you can tap into that brand recognition and reach a wider audience.
5. Advertising Opportunities
If you’re wondering how to increase sales on Amazon, the platform has several advertising options available to brands. You can take advantage of Amazon’s demand-side platform for off-site advertising, as well as audio and video ads, sponsored brands, display, and products. With these digital marketing and advertising opportunities at your fingertips, you won’t need to pay for other advertising services—at least not to start.
Cons of selling on Amazon
Selling on Amazon can be a great opportunity for brands to increase their reach and sales. However, it’s important to be aware of the potential downsides as well. Here are some cons to keep in mind:
1. Competition is Fierce
Amazon’s popularity is both a blessing and a curse. While it’s a great platform to sell on, it also means increased competition. It’s not just against other third-party sellers either; Amazon itself competes with third-party sellers through its Amazon Basics line, which duplicates top-selling products. So, if you’re planning to sell on Amazon, be prepared to face some fierce competition.
2. Fees and Commissions Add Up
Amazon charges fees and commissions on product sales, and they can quickly add up. There are two fee plans: the individual plan charges $0.99 per unit sold, and the professional plan charges $39.99 per month for an unlimited number of units sold.
In addition, referral fees range from 8% to 45% and vary by product category. It’s also important to note that while Amazon charges customers right away and brands ship products right away, Amazon does not pay third-party sellers until 90 days later. So, be prepared to manage your finances accordingly.
3. Limited Control over Customer Experience and Data
One of the biggest drawbacks of selling on Amazon is that you have limited control over the customer experience. Amazon processes the sales and ships the orders, which means that you have less control over packaging and shipping times. Additionally, Amazon provides very little customer data, which can be a hindrance for brands looking to build customer relationships.
4. Counterfeit Products
Another issue that can arise from selling on Amazon is the prevalence of counterfeit products. This is a major concern for brands, as it can lead to lower sales and negative reviews of the original product. It’s not uncommon for counterfeit products to be listed under a brand’s product listing, which can damage a brand’s reputation.
5. Lack of Control over Fees and Rules
When you sell on Amazon, Amazon sets the rules. This means that you have to abide by their policies and fees, which can change at any time. Amazon’s focus is on keeping their customers happy, not necessarily their sellers. They can be quick to shut down accounts with negative reviews, and the process to reopen a professional account isn’t always easy or fast.
Additionally, Amazon has the final say when it comes to fees, including referral fees and Fulfillment by Amazon (FBA) fees. FBA fees can be a significant cost for e-commerce brands, and they’re subject to change. Amazon has raised FBA fees every year, and brands that rely on the service have to adjust to the increases or find a new fulfillment partner.
Is it too competitive to sell on Amazon?
Despite the increased competition in recent years, there’s still room for new sellers to make a profit.
Sure, nearly 600,000 new sellers are signing up to sell on Amazon this year. That’s a lot of sellers! But, keep in mind that Amazon’s market share is continually growing. So, while more sellers may make things a bit more challenging for existing sellers, you won’t necessarily be stealing sales from each other. Instead, you’ll be sharing a much larger and ever-growing customer base.
If you’re a new seller, don’t just jump into selling a product without doing any research or simply because it’s “popular.” Take your time to do the proper product research needed to be successful in eCommerce and on Amazon. With some careful planning and research, you can still find success as an Amazon seller.
What does it take to sell on Amazon?
The amount of money you’ll need depends on the type of business model you choose and the products you want to sell.
Now, before you start stressing, let me tell you that most Amazon sellers don’t take out loans and start with a pretty modest budget. In fact, according to the 2022 Jungle Scout report, 69% of Amazon sellers start with $5,000 or less in their pocket.
If you’re working with a tight budget, there are some business models you can consider. One option is retail arbitrage, where you buy products at a low price from retail stores and resell them on Amazon. Another option is starting a wholesale business, where you buy products in bulk at a discounted price and sell them on Amazon.
If you’re looking to balance your time, consider using the FBA fulfillment method. Since FBA takes care of all the logistics and customer service, you can run your business with only 10 hours a week. It’s not surprising that 43% of current Amazon sellers use this method.
Another factor to consider is the time it takes to see profits. It’s essential to research and establish a realistic timeline for your finances. According to reports, 63% of Amazon sellers have seen profits within a year of launching their business, with 20% turning a profit in less than three months.
However, if you’re creating your brand, it may take longer to start seeing profits. Approximately 22% of Amazon sellers said it took them three to six months, while 10% said it took them one to two years.
Make sure you have all of these items ready to go before you start the sign-up process. That way, you can get up and running on Amazon quickly and easily.
Here’s what you’ll need:
- Bank account number and bank routing number from a bank located in a country supported by the Amazon Currency Converter. Keep in mind that Amazon can’t transfer funds to a credit card or online payment system like PayPal.
- Business address. This is the address that will appear on your Seller Profile page.
- International credit card that Amazon will charge fees to. You can use American Express, Diner’s Club, Discover, JCB, Mastercard, or Visa.
- Government-issued national ID.
- Tax information.
- Phone number.
As an Amazon seller, it’s totally normal to make mistakes and miss the mark sometimes. But in order to have a successful business, it’s important to be able to adjust your strategies when needed. That’s where analytics tools come in! They provide valuable metrics that can help you achieve your business goals. Here are four awesome tools to get you started:
- Helium 10
- AMZ Tracker
It’s important to regularly check the analytics metrics of your sales. Keep in mind that many products have seasonal highs and lows, so you’ll need to adjust your strategies accordingly. Sometimes, changing product pictures or descriptions can also have an impact on sales.
And believe it or not, world events can even affect how products trend! So keep a close eye on your metrics and use these tools to make informed decisions to help grow your Amazon business.
So, is Amazon FBA worth it?
While it’s true that Amazon can be a competitive space and requires a decent investment of both time and money, many entrepreneurs have found success with this venture. But is it really worth it? Well, that’s a question that only you can answer.
In our opinion, the benefits of selling on Amazon outweigh the negatives. However, let’s be clear: running an Amazon FBA business is not a set-it-and-forget-it type of deal. It takes effort, learning, perseverance, and hard work to make it a success. But, if you are willing to put in the effort and continuously improve and learn from your mistakes, then you can be successful in the Amazon marketplace.
Of course, success is not guaranteed, and not every seller who launches a product on Amazon will be profitable. But if you’re up for the challenge, have a solid business plan, and are willing to put in the work, then there’s a good chance that you can make a good profit on Amazon.
Here are some valuable resources to help you get started:
That being said, if you’re not comfortable taking any financial risk, then starting an Amazon FBA business may not be the best option for you. There are plenty of other ways to make money online, so it’s important to consider all of your options before jumping in.